LEXLAW Solicitors & Barristers
BBC Panorama featured LEXLAW as we helped expose a major bank swap scandal, with widespread mis-selling of complex derivatives to SMEs. Despite a Financial Conduct Authority (FCA) redress scheme reviewing nearly 30,000 cases, only 32 businesses had received payouts at the time of the report.
Our client was awarded about £1 million in a swaps mis-selling settlement with Lloyds after being sold a complex multi-cancellable swap they did not understand. The product allowed Lloyds to cancel the contract if interest rates rose, removing the protection at critical times. The case highlights how banks have been settling many swaps claims discreetly.
The Court of Appeal in Green & Rowley v RBS confirmed that a bank does not owe a common law duty to ensure that customers fully understand the risks of interest rate swaps beyond the regulatory requirements. The case involved claims of mis-selling, particularly around inadequate disclosures. The court upheld that the bank’s compliance with the Financial Services Authority’s Conduct of Business Rules was sufficient, and the customers were considered knowledgeable enough to understand the transaction.
The FCA’s update on the IRHP mis-selling review reveals severe delays, with only 10 final redress offers accepted out of over 30,000 cases after 14 months. RBS, with the largest review population, lags behind, still classifying many customers. Only 2% of sales have completed compliance assessment, with 93% found non-compliant.
The Court of Appeal dismissed the Green & Rowley appeal against RBS regarding swaps mis-selling. The appeal failed mainly because the claimants abandoned their section 150 FSMA claim, likely due to mistaken limitation concerns. The court found no common law advisory duty beyond regulatory compliance in this case. The decision highlights the critical importance of correctly calculating limitation periods.
The Green & Rowley v RBS appeal, heard by the Court of Appeal, focused on whether RBS properly explained the risks of an interest rate swap product. The FCA intervened to clarify regulatory rules on swaps mis-selling. The claimants’ decision to accept the section 150 FSMA claim as time-barred weakened their case. The judgment highlights the critical need to correctly calculate limitation periods and thoroughly manage these complex claims from the outset.
The FCA Swaps Review has faced significant delays since beginning in April 2013, frustrating many affected businesses. Latest FCA data reveals that only 50% of sophistication assessments are complete, 3.9% of cases have reached interviews, and 2.6% have had payments suspended. Delays risk customers losing legal rights due to the six-year limitation period. Concerns exist over banks bypassing the sophistication stage while fairness issues arise over banks self-assessing their mis-selling.
The FCA/FSA Hedging Review is conducted by the banks, not the regulator, and involves recorded interviews or fact-find meetings with customers. These interviews can be one-sided, with the bank’s lawyers asking questions designed to limit compensation. Customers often have limited rights to access bank records or challenge questions. A written statement, prepared with legal guidance, can be a safer way to present the sales experience without the risks of interviews.
The Parliamentary Commission on Banking Standards’ Final Report calls for radical reforms to restore banking trust, addressing LIBOR manipulation and derivatives mis-selling. Key proposals include criminal liability for reckless bankers, improved governance, stronger regulator duties, and wider access to the Financial Ombudsman Service for small businesses. The report urges greater financial literacy, transparency, and regulation to prevent banks from disclaiming advisory responsibility when selling complex products.
The Financial Ombudsman Service (FOS) saw a 92% rise in new complaints in 2012/2013, with 258 cases related to interest rate hedging products (IRHPs) like swaps. However, the FOS can only handle complaints from microenterprises, excluding many small businesses. The FOS also has a £150,000 compensation cap, often insufficient for these claims. The FSA rejected setting up a special scheme for wider IRHP complaints, leaving the FOS as a last resort after bank reviews.